Every now and then I have a contentious deal where I should be wearing a black and white referee’s shirt instead of a shirt and tie. I’m usually successful in getting everyone to calm down and close the transaction. The case of KGM Custom Home Builders v. Prosky (embedded below) recently decided by the Massachusetts Supreme Judicial Courtis an example of how really bad behavior at a real estate closing can get a party into big legal trouble.

45 Acres in Mansfield for Sale

The Prosky family of Mansfield entered into an agreement to sell 45 acres of developable land to KGM Custom Builders. The sale price was linked to the number of buildable lots that KGM could permit. After spending over $300,000 in 5 years including weathering an appeal, KGM was able to obtain permits for 60 residential units. However, the Proskys received a better offer for the land and a dispute over calculation over the purchase price arose. Nevertheless, KGM was not willing to back down, and scheduled a closing. Repudiating the contract, the Prosky’s attorney informed KGM that it should calculate the liquidated damages provision in the contract because the sellers were not going to sell.

Closing Shenanigans

A closing was nevertheless scheduled at which the Prosky’s attorney showed up with a professional videographer as “defense strategy.” The parties’ attorneys started yelling at each other, and KGM’s attorney shut off all electricity to the building, but the videographer was able to tape with battery power. KGM’s attorney demanded that the Prosky’s attorney produce the closing documents he was supposed to have drafted. The Prosky’s attorney waived the documents in the air, and when the buyer’s attorney went to grab them, he pulled them back and asked if could read them from 2 feet away. KGM, with funds on hand, was ready, willing and able to close, and took the Prosky’s attorney’s antics at the closing as not engaging in good faith, and walked out. At the end of the closing, one of the sellers asked the videographer, “can you explain to me what just happened”? (I would love to see this videotape!).

Anticipatory Repudiation, Breach of Good Faith and Fair Deal, or Both?

Naturally, KGM sued the sellers. The trial judge ruled the sellers had engaged in anticipatory repudiation but he calculated the sales price in favor of the sellers at over $1M, giving the buyer the option of going forward with the deal or taking the liquidated damages because the buyers had also breached the covenant of good faith and fair dealing with their attorney’s antics at the closing. The buyer elected damages, and the judge awarded nearly $500,000 in permitting costs and attorneys’ fees. The sellers weren’t happy with this, so they appealed.

On appeal at the SJC, the legal issue was whether the law allowed the trial judge to provide the buyer with this favorable election of remedies. With few exceptions, outside of the commercial law context, Massachusetts has not generally recognized the doctrine of anticipatory repudiation, which permits a party to a contract to bring an action for damages prior to the time performance is due if the other party repudiates. One such exception occurs where a seller of land informs the “holder of an enforceable option” to purchase that he plans to sell the land to a third party. The high court ruled that this case fit within this exception and upheld the award of damages to the buyer. Naturally, the court seemed particularly upset about the behavior of the seller’s attorney at the closing. In fairness, the SJC did slash the attorneys’ fee award by $120,000, but with statutory interest accruing for several years now, the end result will likely be the same — the sellers are out a lot of cash.

Fortunately, these types of antics are very much the exception rather than the rule at Massachusetts closings. There is really no excuse for this type of unprofessional behavior at a closing, no matter how contentious the dispute. If a party is going to elect to terminate a deal, go ahead and do it without the theatrics. After all, what you say and do at a real estate closing may come back to bite you and your client.

“This case involves the intersection between the seventeenth century Statute of Frauds and twenty-first century electronic mail.” –Justice Douglas Wilkins

Massachusetts courts have been grappling with the question of “when is a deal a deal” for a long time. With the vast majority of communication in real estate now done via email and other electronic means, it was just a matter of time before a court was faced with the question of whether and to what extent e-mails can constitute a binding and enforceable agreement to purchase and sell real estate. The real estate community has been waiting a few years for a case like this to come down, and now it’s here.

In Feldberg v. Coxall (May 22, 2012), Superior Court Justice Douglas Wilkins ruled that a series of e-mail exchanges between the buyer’s and seller’s attorney, the last one attaching a revised, but unsigned, offer to purchase, arguably created a binding agreement entitling the buyer to a lis pendens (notice of claim). This is also one of the first cases applying the new Massachusetts E-Sign law to preliminary negotiations in real estate deals.

This is a very interesting and important decision for anyone dealing in residential real estate in Massachusetts. The immediate take-away is that now anything sent in an e-mail can potentially create a binding deal, even if no offer or purchase and sale agreement is ultimately signed.

Vacant Lots In Sudbury

Feldberg, the buyer, was interested in purchasing 2 undeveloped lots in Sudbury owned by Coxall, the seller. The parties’ attorneys, via email, began negotiating the terms of the deal. (Apparently, brokers were not involved in the offer stage).

The buyer’s attorney e-mailed the seller’s attorney and attached a “revised offer with changes to reflect the conversations we have had today.” The revised offer appeared to be comprehensive inasmuch as it contained an agreed upon purchase price of $475,000 and a firm closing date. The email ended with the suggestion that both attorneys work “to have the final offer form finalized in time for my client [the buyer] to sign it and get deposits checks to you before the end of the day tomorrow.”

The seller’s attorney emailed back the next day, stating that “we must have a written approval letter from the bank today by 5pm and I think we are ready to go (I assume they will provide a closing date with the approval). We are almost there.” That same afternoon, the buyer’s attorney provided a commitment letter from Village Bank with standard conditions.

Apparently, before the seller signed the offer, he backed off and refused to proceed with the transaction. The buyer sued, and sought a lis pendens, which is a notice of claim filed with the registry of deeds. In most cases, a lis pendens will prevent a seller from conveying litigated property to another buyer.

Statute Of Frauds Intersects With E-Mail

As Judge Wilkins eloquently noted, this case involves the “intersection between the seventeenth century Statute of Frauds and twenty-first century electronic mail.” The Statute of Frauds is the genesis of the saying “always get it in writing.” The ancient law, originating in England, provides that all real estate contracts must be in writing signed by the party (or agent) to be charged. In the “old” days, application of the Statute was quite simple. If there wasn’t a written agreement signed in wet, ink signatures, there was no binding deal. Now with e-mail it’s much more complicated.

As the judge noted, this is uncharted territory for the courts as there has been a dearth of precedent on point. The Massachusetts Uniform Electronic Transactions Act (UETA) provides that parties to a real estate transaction may consent to conduct the transaction electronically via email or electronic signature technology if they use such technology in their dealings (which everybody does these days). They even may even switch to a traditional hard copy agreement at the end of negotiations like Feldberg and Coxall did here. The UETA requires some form of “electronic signature.” The judge ruled that an email signature block or even the “from” portion of the email may constitute a valid electronic signature. Accordingly, the judge found that the buyer had made a sufficient case that a binding deal had been reached, despite the seller refusing to sign the hard copy offer. (Update: the case was settled out of court by the parties).

Take-Away: Emails May Come Back To Bite You

I think that some Realtors and even some attorneys have assumed that negotiations by email leading up to an offer are preliminary and not binding until the offer is actually signed by both parties. This ruling throws that conventional wisdom out the window.

What can you do to prevent your emails from creating binding obligations? Well, apart from not using email in the first place, one thing you can do right now is to insert a disclaimer in your email signature. Here’s one that I just came up with:

Emails sent or received shall neither constitute acceptance of conducting transactions via electronic means nor shall create a binding contract in the absence of a fully signed written contract.

Feel free to use it. Other than that, you need to watch what you say in your emails, especially when you represent a seller who is considering multiple offers. Make it clear and in writing from the outset that there is no deal until an offer is signed by both buyer and seller.

After six years of litigation over a deceptive bait-and-switch condominium purchase scheme, a Cambridge couple has forced the listing broker in the deal to pay them $872,000 in compensation. The case isOleg Batishchev v. Brenda Cote and others (click to download).

The case started in 2005, after the first time home buyers paid $683,385 for a condominium unit from Perception Ventures LLC. The couple believed they were buying a newly renovated unit on the right side of the building. Victimized by what the trial judge called a “preposterous fraud,” the developer, the listing broker and the seller’s attorney tricked them into buying a unit on the left side of the building which was beset with such substantial and egregious workmanship defects as to render it virtually uninhabitable.

After a two week jury trial by Attorneys John Miller and Jonathan W. Fitch of the Boston firm Sally & Fitch, the developer and his agents were held liable under the Massachusetts Consumer Protection Act, Chapter 93A. The case dragged on through two appeals, and was finally concluded with the payment of $872,000 from the listing broker.

The couple had previously settled with the sellers’ lawyers for $150,000 and, following a one week jury trial on damages, had also received a damage award of more than $425,000 against their own closing attorney for her malpractice.

What troubles me most about this case is that the attorneys got caught up in this scheme, either intentionally (in the case of the seller’s attorney) or by failing to recognize the shenanigans going on (in the case of the buyers’ attorney). The lesson to be learned is that if there’s smoke, there’s usually fire.

We left off in our last post at the discovery state of litigation. We covered fact discovery of witnesses, but we didn’t address an important component of most real estate litigation cases: experts.

Expert testimony is required when you need to explain to a judge or jury a technical area of the case which is outside the general knowledge of a “regular” person. Experts in a Massachusetts real estate lawsuit can range from appraisers, construction experts, land surveyors, title attorneys, land use planners, civil and wetlands engineers, traffic planners, and handwriting experts. Needless to say, experts are expensive, charging several hundred dollars per hour on an engagement. But they are vitally important. In Massachusetts state court litigation, parties must disclose before trial an expert’s qualifications and a general summary of what the expert will testify to at trial, including his methodology. For litigators like myself, preparing and cross-examining experts is often quite an intellectual challenge and one of the “fun” parts of a trial.

Dispositive Motions

Often in real estate litigation, the case can be decided by way of a “dispositive motion” by the judge prior to trial. In this procedure, called a motion to dismiss or summary judgment, the important facts of the case are undisputed, and the judge can decide the case based on the law. The lawyers will prepare detailed motions, affidavits, and legal briefs, and there will usually be a lengthy hearing before the judge. This procedure will also avoid the need for a trial, saving litigants a much expense. Judges, however, can take a long time deciding a dispositive motion. Months to even a full year is not unheard of.

Pretrial Conference

If the facts of the case are hotly disputed, the case will be set down for a trial date at the pre-trial conference. At the pre-trial conference, the attorneys meet with the judge to discuss readiness for trial, witness lists, expert testimony, unusual legal or evidentiary issues, and the status of settlement talks, if any.

Obtaining a firm trial day these days is pretty much a moving target. It really depends on the county. Middlesex Superior is pretty good at giving firm trial dates, while Norfolk County is not, in my experience. The Land Court gives out firm trial dates, but has no juries. Prepare to wait several months after the pre-trial conference to get a trial date, which will probably be rescheduled at least once. Massachusetts courts have been beset with budget cuts which has negatively impacted the speed of the courts’ docket. Justice moves slowly in the Commonwealth.

Settlement/Mediation

Given the huge costs and delays of litigation, this is a good place to talk about settlement and mediation. I always explore settlement possibilities of a case early on. If a case can be settled early, both litigants can avoid significant legal expenses and can usually craft a better resolution than a judge or jury can. But clients often come to me very upset and emotional about the situation, so talking settlement may be perceived as “caving in” to the other side. It is not, and clients usually see the light once they get a bill or two from my office.

Mediation is a non-binding settlement process where a neutral mediator (usually a retired judge or experienced attorney) will mediate the dispute between the parties in a structured manner. Both sides get to tell their sides of the story, then the mediator will usually separate the parties into different rooms, shuttling back and forth attempting to broker the peace. There is a cathartic and healing process that often occurs during mediation where parties have a chance to express their anger, resentment, and feelings which can greatly assist the settlement process. Also, the settlement itself often can be much more flexible and creative than what a judge or jury can render after a trial. If mediation does not work out, the case goes back on the trial list. There is no obligation to settle.

Trial

Less than 1% of all civil cases in Massachusetts get to the end of a trial. If your case is in this 1%, prepare yourself for an experience. Jury trials are not for the faint of heart. They are incredibly labor intensive, with the attorneys spending hours upon hours preparing for trial, and burning the midnight oil during the trial itself. The more lawyer time required, the higher the legal bill.

If you are selecting a Massachusetts litigation or trial attorney, ask him or her how many civil jury trials they have done. I’m not talking about former district attorneys who have done a bunch of criminal trials. Complex, civil trials are a totally different animal and call for a lawyer who has done a significant amount of civil trial work. Be wary of any lawyer who claims to have won every trial he has done. There is a saying that a trial lawyer who has never lost a case hasn’t tried many in the first place. Don’t be afraid of small law firm attorneys. In my experience, they are much better trying cases than big firm lawyers who spent the greater part of their careers doing document review and depositions.

Appeals

In the American judicial system, litigants can pretty much appeal anything with impunity. Filing an appeal will usually stop a final judgment from issuing, but in some cases the winning party can ask the losing party to post a bond.

Appeals requires a special skill set, great research, and writing by an experienced Massachusetts appellate attorney. The appeals process can take at least a year or even more to complete. The trial record must be assembled by the trial court. If there was a trial, transcripts need to be ordered from the court reporters or digital tapes and then transcribed. This can take quite a bit of time. Then, the attorneys file lengthy appellate briefs, after which the case is scheduled for oral argument before a panel of appellate justices. After oral argument is held, the court will issue its written opinion, which will either uphold the lower court’s decision, reverse it, or remand it back for a new trial or other action. Appellate opinions are released to the general public and become what is known as the common law of Massachusetts, to be cited as precedent in other cases.

Well, that’s it for now. Remember, litigation should be a last resort, once all attempts at an amicable, reasonable resolution fail.

The recent case of Brice Estates v. Smith where an abutter trespassed on a developer’s land to photograph endangered female four toed salamanders got me thinking about the frequent convergence of developer’s rights vs. citizen’s free speech rights in real estate disputes. In the case, the abutter sought refuge under the pro-free speech anti-SLAPP law, but the court said that he was still trespassing.

A SLAPP is an acronym for Strategic Litigation Against Public Participation. Before being legislatively outlawed, real estate developers would often use SLAPP lawsuits to muzzle abutters who would organize and complain during town meetings and sue to stop real estate projects. The abutters couldn’t afford to defend against the SLAPP suits, so they would back down.

Concluding that citizens’ free speech rights were being suppressed by SLAPP suits, the Massachusetts Legislature in 1994 outlawed them in what’s now referred to as the “anti-SLAPP Act.” The law protects such free speech activities such as filing zoning appeals, reporting violations to state agencies, and lobbying. The anti-SLAPP Act has been one of the most litigated pieces of legislation within the last 15 years.

Anyways, back to the four toed salamanders. Proving the existence of endangered wildlife (spotted frogs, diamond backed terrapins, barn owls, you get the picture) is a sure fire way to get a real estate project derailed, or at least subject to much stricter permitting, delays and scale downs. And that’s exactly what the abutter did in the Brice Estates case when he tip-toed onto the developer’s land with his Nikon to do his best National Wildlife photo-essay. So naturally, the developer sued the abutter for trespassing.

Arguing that the trespass claim was really a SLAPP suit, the abutter said that the developer sued him just for reporting the salamander to the state. The court disagreed, ruling that trespassing wasn’t a constitutionally protected right.

So the moral of the story is that a quest to find a female four toed salamander can get you into some legal trouble.

Find What You're Looking For

Author

Richard D. Vetstein, Esq. is a nationally recognized real estate attorney and past Chair of the Boston Bar Association's Title & Conveyancing Committee. For more information about him, click here. You can contact Attorney Vetstein at rvetstein@vetsteinlawgroup.com or 508-620-5352.